How do my sister and I transact a inheritance buyout with probate where she keeps the full property tax exclusion?

Question

My sister and I are both executors and only beneficiaries of my mom’s personal residence real estate. Pursuant the will, we each have a 50% interest. We are almost to the end of probate in Ca (Solano County). Getting ready to file the Order for Final Distribution. My sister wants to buy me out and make the home her residence, but we are trying to avoid reassessment with sibling to sibling transfer. She has already filed a homeowner exemption and has moved into the property before the year deadline. Since we are also the executors, could we take out a home equity loan on the property as executors and not heirs to bypass this? She will be 55 at the end of April. Can she transfer her existing property tax base on her previous home she hasn’t yet sold(which is comparable) to my mom’s property if she buys me out after close of probate? Would she have to sell her property first? How do we avoid a probate loan and save on property taxes? How do we write it into Order for Final Distribution?

James L. Arrasmith · Answer

In California, a sibling-to-sibling transfer of a principal residence can be exempt from property tax reassessment under certain conditions. Since you and your sister are both executors and beneficiaries, it's possible to structure the buyout in a way that preserves the property tax exclusion. The key is ensuring the transfer is structured correctly according to California's Proposition 19, which governs these situations. 
 
Regarding your sister's age and the potential to transfer her existing property tax base, Proposition 19 allows homeowners who are 55 or older to transfer their tax base to a new home under specific conditions. However, this process can be complex and depends on the timing and value of the properties involved. It's advisable to consult with a tax professional or a real estate attorney familiar with California's property tax laws to navigate these specifics. 
 
As for the home equity loan idea, using a loan to facilitate the buyout could be a viable option, but it's important to consider how this impacts the transfer for property tax purposes. The final structure of the transaction should be carefully reviewed to ensure compliance with tax laws and probate regulations. 
 
When drafting the Order for Final Distribution, it's crucial to clearly state the terms of the property transfer and the buyout arrangement. This document should reflect the agreed-upon arrangement and comply with California probate and property tax laws. Again, consulting with a professional experienced in estate planning and real estate law in California is recommended to ensure that all aspects of the transaction are legally sound and tax-efficient.

Q: How do my sister and I transact a inheritance buyout with probate where she keeps the full property tax exclusion?